More on the tax credit for home buyers 2009

First-time home buyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction--a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income. The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Tax Credit vs. Tax Deduction

It's important to remember that the $8,000 tax credit is just that...a tax credit. The benefit of a tax credit is that it's a dollar-for-dollar tax reduction, rather than a reduciton in a tax liability that would only save your $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.

Phaseout Examples

According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

To break down what this phaseout means to home buyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000 and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Example 2: Assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.

Homes that Qualify

The tax credit is applicable to any home that will be used as a principal residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principal residence also qualify.

$8,000 First-time Home Buyer Tax Credit

Last year the government passed a first-time home buyer tax credit that allowed eligible participants to receive $7,500. The big catch was that this had to be paid back at 0% interest over 15 years. The 2009 version of this tax credit is much improved and should cause many buyers to jump off the fence prior to November. Who wouldn't want $8,000 to pay down their loan or furnish their new place with furniture? This should be a big incentive to Seattle home buyers who are already enjoying lower prices and interest rates! Below are the basics of how the tax credit works.

• Effective dates: applies to purchases from January 2009-November 2009


• Tax Credit available up to $8,000 for first-time home buyers only.


• A first-time home buyer is a buyer who has not owned a home during the last 3 years. (Joint purchase applies to both parties)


• Eligible Property: Any residence that will be used as a principal residence. (Including single family, attached townhouses, condos, manufactured homes and houseboats) No second homes or investment properties.


• Income Limits: Adjusted gross income for single filers with incomes below $75,000 and couples with incomes below $150,000.


• Estimated partial credit for single filers with income up to $90,000 and couples up to $170,000. This is a general example. Please consult a tax advisor for stipulations on the partial credit.


• Tax Credit vs. Tax Deduction: the true benefit is a dollar for dollar tax reduction, rather than a reduction in liability. If you owe $8,000 in income taxes and you qualify for the tax credit, you owe nothing.


• Tax credit only needs to be repaid if home sold within the first 3 years.


• Purchases closed in 2008 will not be eligible for the 2009 revision of this tax credit.

Take advantage of the $8,000 tax credit today!

January Numbers to Know

The following graph depicts single-family home sales in the city of Seattle. Overall inventory continues to drop which is a good thing to see for the health of the market. Pending sales are down from a year ago but up from the past few months. This potentially points to more activity from buyers in the new year. As we begin the spring buying months, I expect these numbers to creep up a bit more. Ideally, the $8,000 tax credit acts as a catalyst to move sales up even more.

Obama to unveil mortgage relief plan

Even in a stronger real estate market like Seattle, many homeowners still need help to stay in their homes. Obama will outline the details for his upcoming plan to stabilize the mortgage industry in order to help struggling homeowners. In anticipation of the plan, government-controlled mortgage finance companies have halted all foreclosures until March 6th. Obama seems to recognize the importance of housing in relation to the nation's economy and is expected to allocate roughly $50 billion to keep homeowners in their houses.

While foreclosures are higher in the Seattle area than in years past, other areas have been hit much harder by the downturn in real estate. One of those, Arizona, is where Obama has chosen to deliver his address for the mortgage plan.

Read full article here.

More on the home buyer tax credit...

Well, it appears that in the negotiations to find middle ground between the bill that the House passed and the one the Senate passed...the $15k deal proposed by the Senate was wiped out. Of course, nothing is official until President Obama signs the package into law. But this isn't the best news for home buyers or for people like me in the real estate world. It appears the credit was eliminated to lower the overall cost of the stimulus package and perhaps put more focus on creating jobs. $15k or no $15k, people can't buy houses if they don't have a job!

There is a slight silver lining however. It seems as though the Senate and House agreed to make the current $7500 first-time home buyer tax credit permanent...meaning, a person can keep the money vs. pay it back as current law now requires. It also looks as if it might be bumped up to $8000. This could have a direct effect on Seattle real estate as it seems a lot of younger buyers are waiting out the "unknown."

In the end, I just hope the stimulus works for our country even if it doesn't have an immediate impact on the housing market. Roughly $8k will still be great for any Seattle home buyer making their first purchase...or their first purchase in 3yrs. Free money is free money!

Again, nothing is official yet. So I will have a full explanation of the bill as it relates to real estate as soon as I can.

$15,000 home buyer credit?

It's not official law quite yet but the Senate took a bold step yesterday to truly stimulate the real estate market. They approved an amendment to the upcoming stimulus package that would essentially give $15,000 to anyone who buys a home in 2009. This money would come in the form of a tax credit and will not have to be paid back! The provision states that a home buyer can receive 10% of the price of their purchase up to $15k. Home prices in Seattle essentially dictate that most buyers will qualify for the full amount. If you owe money on your 2009 taxes, the amount you owe would be taken out of the $15k. This is great news for our markets, economy and any buyers sitting on the fence.

If you've been waiting for prices to drop or interest rates to drop, $15,000 should be enough reason to make you buy now while both rates and prices are low! The longer a person waits, the more buyers will enter the market to cash in on their tax credit. This will have a stimulating effect on the market and cause prices to level out or rise in some micro-markets.

Read the NY Times article explaining the tax credit.

"Will the last person leaving Seattle..."

...Please turn out the lights.

Nearly everyone is familiar with the famous saying from the 1970s. If that that specific phrase, then perhaps one of the many altered forms that pop up in any depressed city or institution. According to the Seattle Times:

The message has been copied all over the world, with the word "Seattle" replaced by Detroit, St. Louis, New Jersey, Australia and even "the planet." And it has been used for other occasions in which a catchy, sardonic slogan is desired — "Will the last person with ethics on Wall Street... "

The two minds behind this iconic message are Bob McDonald and Jim Youngren. The pair were selling commercial real estate during one of the darker periods in Seattle's economy. Boeing had recently laid off 60,000 workers and the state's unemployment rate was more than double the national number at 13%. The two posted the sign as part satire and part business opportunity.

Now, with recent layoffs from Seattle's major companies: Boeing, Microsoft and Starbucks...stories and blogs have started to recycle the famous line.

Read the full article here.